Cyprus eyes 1-1.5% growth in 2012 from 0% in 2011

Cyprus's economy will come close to stagnating this year and growth will inch up to no more than 1.5% in 2012, its finance minister said on Wednesday.
The euro zone's third smallest economy was impacted by a massive munitions blast that destroyed the island's largest power station in July, briefly disrupting business activity from rolling power cuts.
"Our rate of growth is forecast at zero this year. If we do have growth it will not exceed half a percent," Kikis Kazamias told reporters. "For 2012 we estimate this rate could exceed 1.0% and reach 1.5%."
Kazamias said a draft budget bill authorities will submit for approval to parliament sees the island's fiscal deficit falling to 2.3% of GDP next year, from a shortfall estimated at between 6.0 and 6.5% in 2011.
The deficit reduction to 2.3% was contingent on parliament approving a proposal to raise VAT to 17% from 15%, Kazamias said. Without that measure, a further 1 percentage point could be added to the deficit forecast for next year.
The island has been downgraded by all three major ratings agencies in the past three months. Its financing options are also curtailed by high yields on its debt now traded on secondary markets. Nicosia is negotiating a long-term loan with Russia for 2.5 bln euros, Cypriot and Russian officials have said.
Last month parliament approved pay cuts in the civil service, while authorities say they will also cut social benefits next year by 10%, abolish 1,100 positions in the public sector and cut entry salaries into the civil service by 10%.
Authorities have also clinched an agreement with labour unions to suspend wage indexation payments, under which public sector workers receive increments based on inflation, for one semester.
Kazamias said public debt was expected to be in the region of 65% of GDP next year. It would fall to 64.2% in 2013, he said.